Does a Gold Loan Affect Your CIBIL Score? Complete Guide

Financial institutions consider the CIBIL score, popularly referred to as the credit score, as a crucial aspect of lending. It reflects your history of debt repayment and is determined based on various factors, gold loans being one of them. This article spotlights how a loan on gold can affect your credit score.

What Is The CIBIL Score And Why Is It Important?

Your CIBIL score is a numerical representation of your repayment history. The 3-digit CIBIL number sets an applicant's impression for most lenders. A credit score ranges from 300 to 900. However, a score above 750 is the benchmark for most financial institutions.

Higher CIBIL scores improve eligibility and help individuals take advantage of loan benefits such as lower interest rates and other flexibilities. However, a credit score below 500 is unreliable and can pose a challenge when you apply for unsecured and secured loans.

CIBIL scores play a crucial role in determining whether a bank or NBFC will approve your loan application and at what terms. In many cases, a low credit score can lead to outright rejection or result in higher interest rates on approved loans.

Many borrowers often ask: does a gold loan affect CIBIL score? While gold loans are secured loans backed by physical gold, your repayment behaviour still impacts your credit score. Timely repayment can help improve or maintain your score, while defaults or delays can pull it down.

Typically, a score of 750 and above is considered good, offering confidence to lenders about your repayment ability and making you eligible for better loan terms.

How Does A Gold Loan Affect Your Credit Score?

Yes, like other loans, a gold loan and its repayment history are reported to credit bureaus such as CIBIL. However, simply availing a gold loan does not negatively impact your score. What truly matters is how you manage repayments. Timely repayment of interest and principal can help improve or maintain a healthy credit score, while delays, defaults, or missed payments can lower it. In short, your repayment behaviour is the deciding factor. By borrowing responsibly and closing the loan on time, a gold loan can actually support your credit profile positively.

A gold loan can affect your credit score in the following ways:

1. Frequency Of The Application

If you apply for multiple loans in a short period, it can reflect on your credit report as someone craving for credit. As a result, this could affect your CIBIL score.

2. Credit Mix

No borrowing history can also lower your credit score. It is advisable to have a mix of secured and unsecured loans from time to time to maintain a decent credit score. You can turn to gold loans in times of emergencies due to their flexible terms and collateral security. Otherwise, you can opt for unsecured loans to maintain a mix of secure and unsecured loans.

3. Existing Loan

Existing unpaid loans on gold may lower your credit rating. Approximately 30% of the CIBIL score depends on outstanding debt while determining your score. Large outstanding debt can negatively impact your CIBIL score and eligibility for additional loans.

4. Loan Default

Defaulting on your secured gold loan can negatively impact your CIBIL score. It is advisable to clear all payments on or before time to maintain a good credit report and score.

5. Loan Settlement

After clearing all the dues, ensure to receive a formal closure certificate from the lending institution. You must confirm that your loan is “closed” and not “settled”.

The former indicates full repayment of dues and other charges if any. The latter suggests you paid an amount lower than the original amount instead. These unpaid dues imply your inability to repay, and the subsequent loss suffered by the lender, which will harm your credit score.

Does a Gold Loan Increase Your CIBIL Score?

Wondering “does gold loan increase CIBIL score” or “will gold loan increase CIBIL score”? The answer is yes! When managed responsibly. Disciplined repayment of EMIs or bullet payments reflects positively on your credit report. For individuals with thin or no credit history, a gold loan offers an excellent way to start building a credit score. Over time, consistent repayment habits not only strengthen your creditworthiness but also improve your chances of getting other loans on better terms. In short, a gold loan can be a stepping stone toward creating or boosting your financial profile.

Minimum CIBIL Score for a Gold Loan

The minimum CIBIL score for gold loan eligibility is generally not a strict requirement, since the loan is secured against your gold. Most lenders accept applicants even with low or no credit history. However, having a higher score works to your advantage. It can help you negotiate better interest rates, longer tenure, or higher loan amounts. While your gold’s purity and weight are the main factors for eligibility, maintaining a good credit score ensures more favourable loan terms and strengthens your future borrowing opportunities.

Apply For A Gold Loan With IIFL Finance

IIFL Finance is a leading gold loan lender. Since its inception, it has achieved a hassle-free experience for various borrowers. We have successfully provided loans on gold to 6 million satisfied customers who received their funds.

IIFL offers competitive interest rates and flexible repayment terms for short-term gold loans. We also ensure the safety of your collateralized physical gold until you repay the required amount.

Getting a gold loan has never been easier! Walk into any of our branches pan India, fill out an e-KYC and get your loan approved in under 30 minutes.